The Effect of Rises in Cotton Fibre Prices on Textile and Apparel Prices in the Supply Chain
The increases in cotton fibre prices which occurred between August 2010 and August 2011 were steeper than at any time since records began. As a result of these unprecedented movements, no one knew for certain how much -- or how quickly -- those increases would affect the prices of yarns, fabrics and apparel in the manufacturing supply chain, and the prices which consumers would have to pay for apparel items in retail stores. Although the price of cotton has now moderated, the market is set to remain volatile. This report provides strategic planners with a method for predicting the timing and extent to which future changes in the cotton fibre price are likely to affect their business. In addition, it contains a detailed case study of the 2010/11 cotton price spike so that predictions of supply chain prices resulting from future volatility in cotton fibre prices can be made.
SUMMARY
INTRODUCTION
Pass-through analysis: forewarned is forearmed
Developing a method for the textile and apparel industry
Sources of data
ESTIMATING THE EFFECT OF CHANGES IN COTTON FIBRE
PRICES ON APPAREL MANUFACTURING COSTS
Estimating the amount of cotton fibre required to manufacture different types of apparel
Estimating theoretical changes in the cost of manufacturing apparel items resulting from an increase in the price of cotton fibre
Comparing theoretical changes in apparel manufacturing costs resulting from an increase in the cotton fibre price with apparel retail prices
THE EFFECTS OF THE COTTON FIBRE PRICE HIKE ARE WEAKER DOWNSTREAM TRACKING CHANGES IN PRICES THROUGHOUT THE SUPPLY CHAIN: HOW HIGH DID PRICES REACH AND WHEN DID THEY PEAK?
CONCLUSIONS
APPENDIX: ASSUMPTIONS UNDERLYING INTERNATIONAL TEXTILE MANUFACTURERS FEDERATION (ITMF) PRODUCTION COST CALCULATIONS
Product coverage
Reference period
Exchange rates
List of tables
Table 1: Theoretical change in the cost of manufacturing selected apparel items resulting
from an 85 cents/lb increase in the average cotton fibre price
Table 2: Summary of changes in fibre prices and prices in the apparel supply chain, March
2011-JUNE 2012
INTRODUCTION
Pass-through analysis: forewarned is forearmed
Developing a method for the textile and apparel industry
Sources of data
ESTIMATING THE EFFECT OF CHANGES IN COTTON FIBRE
PRICES ON APPAREL MANUFACTURING COSTS
Estimating the amount of cotton fibre required to manufacture different types of apparel
Estimating theoretical changes in the cost of manufacturing apparel items resulting from an increase in the price of cotton fibre
Comparing theoretical changes in apparel manufacturing costs resulting from an increase in the cotton fibre price with apparel retail prices
THE EFFECTS OF THE COTTON FIBRE PRICE HIKE ARE WEAKER DOWNSTREAM TRACKING CHANGES IN PRICES THROUGHOUT THE SUPPLY CHAIN: HOW HIGH DID PRICES REACH AND WHEN DID THEY PEAK?
CONCLUSIONS
APPENDIX: ASSUMPTIONS UNDERLYING INTERNATIONAL TEXTILE MANUFACTURERS FEDERATION (ITMF) PRODUCTION COST CALCULATIONS
Product coverage
Reference period
Exchange rates
List of tables
Table 1: Theoretical change in the cost of manufacturing selected apparel items resulting
from an 85 cents/lb increase in the average cotton fibre price
Table 2: Summary of changes in fibre prices and prices in the apparel supply chain, March
2011-JUNE 2012
LIST OF FIGURES
Figure 1: Theoretical increases in manufacturing costs compared with average retail prices for
four apparel items
Figure 2: Cost structure of open-end yarn made in China, 2010
Figure 3: Cost structure of ring spun yarn made in China, 2010
Figure 4: Cost structure of knitted fabric made from open-end yarn in China, 2010
Figure 5: Cost structure of woven fabric made from ring spun yarn in China, 2010
Figure 6: Relative importance of fibre cost in knitted fabric made from open-end yarn in China, 2010
Figure 7: Relative importance of fibre cost in woven fabric made from ring spun yarn in China, 2010
Figure 8: Trends in cotton fibre prices and yarn prices, August 2010-July 2012
Figure 9: Trends in cotton yarn prices and cotton-dominant apparel import prices, August 2010-July 2012
Figure 10: Trends in cotton-dominant apparel import prices and apparel retail prices, August 2010-June 2012
Figure 1: Theoretical increases in manufacturing costs compared with average retail prices for
four apparel items
Figure 2: Cost structure of open-end yarn made in China, 2010
Figure 3: Cost structure of ring spun yarn made in China, 2010
Figure 4: Cost structure of knitted fabric made from open-end yarn in China, 2010
Figure 5: Cost structure of woven fabric made from ring spun yarn in China, 2010
Figure 6: Relative importance of fibre cost in knitted fabric made from open-end yarn in China, 2010
Figure 7: Relative importance of fibre cost in woven fabric made from ring spun yarn in China, 2010
Figure 8: Trends in cotton fibre prices and yarn prices, August 2010-July 2012
Figure 9: Trends in cotton yarn prices and cotton-dominant apparel import prices, August 2010-July 2012
Figure 10: Trends in cotton-dominant apparel import prices and apparel retail prices, August 2010-June 2012
